Study: DMers Eye Online Profits

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Direct marketers are reporting that their Web sites are far from the money pits of other business disciplines, according to a study released last week. But the big money online is still two years off.

Thirty-nine percent of direct marketers reported that their Web sites have been profitable since inception, according to the study conducted by catalog consultant W.A. Dean & Associates, San Francisco, for investment bank Gruppo, Levey & Co. Inc., New York.

Dean surveyed 60 merchants doing business on the Internet, the majority of whom are catalogers using the Internet as an additional marketing and sales channel.

Four percent of the companies surveyed reported that their sites became profitable in fiscal 1997, and another 25 percent reported that they expect their sites to be profitable in 1998. And while nearly half (46 percent) of the companies surveyed reported online sales of less than $5 million in fiscal 1997, 22 percent reported e-commerce sales of $100 million or more. Nineteen percent reported e-commerce sales of between $5 million and $25 million in fiscal 1997.

Conclusion: Direct marketing discipline translates into online profits, according to Karen Burka, vice president, Gruppo, Levey & Co.

"Everybody's been waiting for the packaged-goods companies, who are branders, to come in and fuel the Web advertising community, and they're not," said Burka. "In the last 12 to 18 months, we've seen the Eddie Bauers and other big [direct marketing] companies finally get in there and start doing what they know how to do best on the Web," she said.

However, even direct marketing companies should not expect online profits to soar for at least another year, warned Richard Fazekas, research director for Dean.

"We've always cautioned that companies first getting into [e-commerce] shouldn't expect an immediate financial windfall," said Fazekas. "The research we've been doing shows that the growth is starting to happen, but the explosion probably won't be happening for another year or two."

For example, 60 percent of the catalogers surveyed predicted the Internet will account for at least 10 percent of gross sales by 2001. Within that group, 20 percent predicted that e-commerce will represent 30 percent or more of gross sales by 2001.

Catalogers also foresee spending less on paper and postage as a result of their Web sites, the study determined. Twenty one percent of companies surveyed said they expect to save more than $1 million annually in print and mailing costs per year by 2001. Sixty-six percent of survey respondents said they would save $100,000 annually by 2001.

The study indicates that during the past year, catalogers have begun to shed their image as laggards on the Internet, said Fazekas.

"[Whereas] a year ago, they were behind the curve, the research that we've done this year shows that in many ways, they are ahead of it," he said.

For instance, 69 percent of the survey respondents reported offering their complete print catalog online. Eight percent offer exclusive online-only items as well. Also, 73 percent of those surveyed accept orders online. Those that don't plan to do so within six to nine months.

E-mail marketing is also picking up steam. Forty percent of survey respondents said they conduct e-mail campaigns, while 37 percent plan to do so.

Consumer marketers are the most aggressive e-mail campaigners, according to the study. Forty-eight percent of consumer marketers conduct e-mail campaigns, compared to 22 percent of business-to-business marketers. One reason for the disparity, the study concluded, is that BTB marketers often rely on high-volume orders negotiated by account reps on a customer-by-customer basis. E-mail marketing is more effective in mass mailings, according to Dean.

Direct marketers have begun more closely tracking response to their online initiatives as well. Fifty-nine percent of the direct marketers surveyed use unique source codes for online offers, while another 21 percent offer online customers a special 800 number.

The financial investment community is also apparently starting to recognize the potential of direct marketing on the Internet. When asked to rank seven economic sectors on a scale of 1 to 7, (1 indicating the greatest potential for e-commerce success) financial analysts gave direct marketing a 2.8, just one-tenth of a point behind top-ranked financial institutions.

"To define success on the Net is the ability to fulfill, distribute and market -- all things that catalogs do best," said Rob Seloti, an analyst with Madison Dearborn Partners, Chicago. "They are a natural for this format."

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